Friday, May 21, 2010

He was the president of the trust which owned one of the most influential temples in his location. The temple was so popular that it drew crowds even from the neighbouring states. Naturally, when there is such a high foot fall, there is bound to be good commerce in and around the temple. And he controlled that commerce.

He was not born rich or influential. He was the son of one of the priests of the temple. As was the custom, be too became the priest in the same temple. He had a certain charm and style of saying the prayers. There was a lot of life in his ways. This was noticed by the temple authorities and he was asked to chant the prayers during important and special occasions as the collections were generally higher when he conducted the sessions. People were mesmerised by his skills and were happy to donate considerable amounts.

His administrative skills were also not un-noticed. He made sure that the queue moved faster and special prayers were started on time and ended on time too. People liked the punctuality he introduced. He interacted well with both the temple staff and the devotees. He understood their concerns and often took steps to rectify them, as far as was possible in his capacity. These small gestures made him the favourite of the devotees as well as the temple staff. After a point of time, he was even considered lucky and was requested to preside over many of the functions and important occasions of people. Especially people who were rich and influential. That enabled him to develop a lot of important connections. All this took so much of his time that he did not have any time to get settled in a family and have kids!

Eventually he was made the treasurer of the temple. This brought him in the direct contact of all the trust members and enabled him to have a clear view of all the money that was exchanged between various parties. He knew exactly how much money came in and where it all went. During his period, the collections to the temple increased tremendously and hence no one, including the members of the trust bothered to look into minor details of where a certain share of it was going to. He knew the loopholes of the system and the money flowed freely in to those loopholes. Rather, he was able to direct the money into them quite perfectly.

Once he started to make more money, he wanted even more. And then, a lot more. He was able to make any amount of money he wanted to, and he was still in the good books of the trust members as the donations and collections kept increasing as well. After a point of time, he had so much black money that he had to open an account with a Swiss Bank. After all, the income tax department could raid the houses of important people any time! And he did not want to part with his money in the form of taxes, to the Government. First, it was made illegally and second, why should he give the Government any money? What did the Government do to him anyway? He was a very hard negotiator, even for small amounts and never spent huge amounts of money on anything.

In due time, he became the President of the trust. He started to make so much money that he had no idea of even how many zero’s were there in the value he held in his Swiss Bank! He had so much money.

Now, in his death bed, he was only worried about one thing – What would happen to all the money once he passed away?

He realised just too late that he had been addicted so much to making more and more money that he never thought about spending it! All his happiness came from making more and more and more of money alone. Money, in his case, became a commodity rather than being the medium of exchange, that it normally is!

Religion is the opium of the masses.
Sure. Like how,
Money is the opium of the rich.

Friday, May 14, 2010

The economic recovery began around the second quarter of 2009 for most economies, and Asia’s industrial production index is now back on track, exceeding the peak pre-crisis levels of 2008. This unlike the Eurozone and USA, which took such a shock that their output is still at levels below 2000.

This means that Asia has reached a self-sustaining cycle, without dependency on USA and Europe, and the concerns over decoupling have not materialized because Asia is no longer coupled with the other geographies as they were a decade ago. In fact, Asia now has a virtuous circle of growth, based upon strong domestic demand, which boosts imports and exports, which helps lift personal income and profitability, which creates more domestic demand.

That is why HSBC forecasts year-on-year export growth of 20 %+ in the region, which is crucial to the level of sustainability of a recovery here in Asia.

But how can that level of export growth be the case when you have the mess that’s in the EU and America?

Answer: a lot of increase in demand has just been within Asia.

So we have this old world view of the American consumer being the consumer of last resort, but it has changed. For example, Korea’s electronic shipments to China and China’s shipments of electronics to the USA were closely coupled at the start of the 2000’s. Today, they are not.

Over the last 18 months, Korea’s exports to China have surged significantly but China’s exports to the USA have not. So it does suggest that the Korean products are going to China and staying in china. This is true not just for electronics, but for motor vehicles and more.

In other words, it’s the Chinese who are shopping!

Historically, China has been an export and investment led economy. That isn’t going to change necessarily, but the fact that private consumption as a share of GDP in China is about 36%, it singles the country out from others in the G20, such as the USA where private consumption is over 70% of GDP.

Equally, savings as a percentage of household disposable income has risen to almost 40% in China over the last decade, up from under 30% at the end of the 1990s. That compares to about 3% in the USA.

Why they are saving so much is, according to a survey of citizens by the Central Bank of China, for their child’s education and their own retirement. These are Chinese citizens’ major concerns and the Chinese government are therefore trying to change this mindset to encourage consumerism.

This does not mean a massive swing to USA-style consumerism, but does mean giving more assurance to citizens about education and pensions so that they save less and spend more.

If this does change the mindset of the people of China, then even a few percentage points swing to spending rather than saving will have a massive impact as it will change the habits of 1.4 billion consumers, not just a few million.

This does not mean that Asia does not need the USA and Europe though, and the risks of continued growth or not are related to America and Europe’s issues.

America has delivered better than expected results for the past few quarters, and so there is recovery there.

In Europe, there are different issues and the concerns about Greece are major. But Greece is a small country in Europe, and the contagion kicked off is not necessarily justified as Spain and Italy, which have been caught in this maelstrom, are different to Greece. Spain’s government debt to GDP ratio is half of that of Greece’s, whilst Italy does have a government debt issue but the budget deficit there is half of Greece’s.

The fundamentals are different but, overall, we do expect governments in Europe to increase taxes and reduce spending, with the UK being one of the critical countries to face that challenge.

In summary, Europe as a region may be in continued recession but you have to look to Germany, which stands out and is still motoring forward. Germany’s economy is about ten times the size of Greece’s and is stable. So there are positive indicators in the region along with those negative ones.

Other worries may be things like the end of policy support from governments, which is unlikely; the end of inventory-led growth, which is also unlikely; exchange rate appreciation, but that assumes demand disappears, and we cannot see that happening as Asia is now self-sustaining.,

There are also concerns about an asset-bubble boom and bust in China. For example, seventy Chinese cities saw property prices were up 12% year-on-year and, in Singapore, it is even more marked with private residential prices up 30% in just the last nine months.

In China, you then need to look at GDP growth, which was up 12% in the first quarter and nominal GDP growth for the last year was 15%, so a 12% rise in property prices makes sense.

What about inflation?

Inflationary pressures are showing some signs of issue, as it is growing rapidly with a bigger underlying inflation problem in the region anticipated for 2011. This means that asset price bubbles could develop in a more meaningful way going forward.

The issue here is that many of the Asian central banks are unwilling to tighten interest rate policies, but interest rates will need to be watched and managed carefully in Asia this year if we are to avoid an asset bubble next year.

Remnimbi is also a topical issue, with the Yuan:$ exchange rate pretty well fixed over past few years. The more pressure the USA puts on China to untie that fix, the more likely China will not do anything but we do think that China will appreciate the exchange rate later this year. It won’t be a massive revaluation of the remnimbi, however. It will just be tentative.

This is because China is worried about their exporters and want to avoid any double dip recession within China, so we expect it to be around a 5 percent appreciation of the Yuan against the US$ over the next nine months.

Longer term, our view is that we expect China to overtake the USA economy by 2035.

In other words, China will become the largest economy of the world in 2035, with the USA and Europe closely behind, and India nipping at their heels.

The only thing that can hold this back is that China’s government are showing too much concern right now about a double dip recession and asset price boom domestically, whilst India does have an asset price bubble and inflationary issues.

The Central Bank of China and Reserve Bank of India must get to grips with these issues to realise these dreams.